Economic Survey 2011-12

Here are the highlights of the Economic Survey 2011-12 tabled by Union Finance Minister, Pranab Mukherjee.

• Rate of growth estimated to be 6.9% in FY 12 

• Outlook for growth and stability promising 

• Real GDP growth expected at 7.6% in FY 13 

• GDP pegged at 8.6% in FY 14

• Agriculture grows at 2.5 % growth in FY 12

• Services grow at 9.4 %, in FY 12, share in GDP at 59%

• Industrial growth pegged at 4-5 % in FY 13

• Industry expected to improve as economic recovery resumes

• Inflation on WPI was high, but shows signs of moderation

• Inflation moderation likely to spur investment

• WPI food inflation dropped from 20.2% in February 2010 to 1.6% in January 2012

• Calibrated steps initiated to contain inflation

• India remains among the fastest growing economies of the world

• India’s sovereign credit rating rose by 2.98 percent in 2007-12

• Fiscal consolidation on track

• Savings & Capital Formation expected to rise

• Exports grew at 40.5% in H1

• Imports grew by 30.4% in H1

• Foreign trade performance key driver of growth

• Forex reserves enhanced, cover nearly the entire external debt stock

• Central spending on social services up at 18.5% in FY 12 Vs 13.4% FY 07

• MNREGA coverage of 5.49 crore households in FY 11

• Sustainable development and climate change high priority

• Tenuous global economic environment turned sharply adverse in September, 2011

• Euro-zone crisis responsible for international downturn

• Slowdown of Indian economy due to global, domestic factors

• Decline in overall investment rate cause for slow recovery

• Gross capital formation in Q3 of FY 12 as a ratio of GDP at 30%, down from 32% in FY 11

• Global economy remains fragile; efforts needed through G-20 for stability

• Progressive deregulation of interest rates on savings accounts recommended

• Deregulation of interest rates on savings accounts to help raise financial savings and improve transmission of monetary policy

• Need deepening of domestic financial markets, especially corporate bond market

• Efforts on to attract dedicated infrastructure funds

• India’s foreign trade performance key driver of growth

• Balance of Payments widens to USD 32.8 bn in H1 of FY 12 Vs USD 29.6 bn FY 11

• Forex reserves up from USD 279 bn in March ’10 to US USD 305 bn in March’11

• India now more closely integrated with the world economy

• India’s share of trade to GDP of goods and services in world tripled in 1990-2010

• India’s flows of capital as a share of GDP in word increased dramatically in last two decades

Inflation

• Inflation to moderate further in FY 13 

• Renewed focus on supply side measures essential for price stability

• Inflation expected to moderate at 6.5-7% by March end

• Gap between WPI and CPI inflation narrows in FY 12

• Milk, eggs/meat/fish, gram & edible oils major drivers of food inflation

• Monetary policy measures taken to contain inflation

• Substantial Monetary policy challenge to rein-in inflation 

• RBI addressed liquidity concerns

• Monetary market remained orderly in FY 12 2011-12

• Need to examine linkages between policy rate changes and inflation

• Threat from asset price bubbles in real estate and stock markets

• Scope to further sharpen monetary policy and use macro prudential to deal with above said threats

• Unexpected shocks such as oil prices remain inflationary threats

• High level of food stocks to help maintain overall price stability

Measures for Price Stability in Food Items

• Need guidance for farmers on fertilizers, insecticide, alternate cropping pattern 

• Need strategy, regular imports of agriculture commodities in smaller quantities

• Need to set up special markets for special crops

• Improve Mandi governance

• Need to promote interstate trade

• Perishable food items should be taken out of ambit of the APMC Act

• FDI in multi brand retain will fill infra gap during harvest period

• Need to step up creation of modern stores facilities for food grains

Agriculture

• FDI in multi-brand retail recommended 

• Higher levels of agricultural output augur well

• Concerns over growth rate in agri sector falling short of target

• Agriculture grows at 2.5% Vs target of 4% in five yr plan

• Agriculture, allied activities account for 13.9 % of GDP in FY 12

• Foodgrains stocks at 55.2 million tonnes

• Production of foodgrains in FY 12 estimated at 250.42 million tones

• Speedy improvement in yield through adequate investment in R&D needed

• Agri infra priority area

• Agri outlook for next fiscal bright

Industry

• Industrial growth pegged at 4-5% in FY 12 

• Industrial growth less than recent past and far below potential

• Need to boost business sentiments, encourage investment and identify bottlenecks

• Industrial sector expected to rebound during next financial year

• Industry expected to rebound with inflation easing, moderation in commodities prices in international market and revival of manufacturing performance

• Long term average annual growth of industries comprising mining, manufacturing and electricity remain aligned with overall GDP growth rate

• Employment in Industry increase from 16.2% in 1999-2000 to 21.9% in 2009-10 largely due tp construction sector

• Contraction in production in the mining sector, particularly in coal and natural gas segments

• Electricity sector witnessed improvement

• Basic goods and non-durables goods grew at 6.1%

• Moderation in growth in other segments of IIP (Index of Industrial Production)

• Negative growth observed in capital goods and intermediates segments

• Gross Capital Formation in industry as percent to the overall GCF moderated to 48.3% in FY 11

• Manufacturing GCF growth rate declined to 7% in FY 11 Vs 42% in FY 10

• Moderation in rate of growth of credit in infrastructure and manufacturing sectors

• Need to address land acquisition and infra issue on priority

Services Sector

• Services sector proves saviour during global crisis

• Services grow by 9.4% despite slowing GDP growth

• Share of services in GDP at increased from 55.1% in FY 11 to 56.3% in FY 12

• Financial & non-financial services, IT, Telecomm, Real Estate constituted 41.9 % of total FDI equity inflows during April 2000-December 2011

• FDI inflows to the Services Sector slowed down FY 10 & FY 11, dipping to negative zone

• FDI inflows in FY 12 recovered; increased by 36.8 % to USD 9.3 billion (April-Dec)

• Slight moderation in services growth no cause of worry

• Moderation due to the steep fall in growth of public administration and defence services reflecting fiscal consolidation

• Growth in trade, hotels and restaurants robust at 11.2%

• Retail-sector growth expected to be even more robust in FY 13

• Worry areas include real estate ownership of dwellings and business services segment

• Software service exports steady; face threat from Eurozone

Trade

• India’s exports grew at 23.5% to reach USD 242.8 bn in April 2011 - Jan 2012 

• Exports decelerated in Oct-Nov due to global downturn; recovered in Dec-Jan

• Key performers in export - petroleum and oil products, gems and jewellery, engineering, cotton fabrics, electronics, readymade garments, drugs

• Imports up 29.4% during April - Jan 2011-12 at USD 391.5 bn

• Key import areas -POL (petroleum, oil and lubricant), gold and silver

• Trade deficit in April-Jan 2011-12 at USD148.7 bn Vs USD 105.9 billion in last fiscal

• Diversification of export and import markets a success

• UAE India’s largest trading partner, followed by China

• India’s services exports bounce back after contraction in FY 10

• India’s services exports grew 38.4 % to USD 132.9 bn in FY 11

• Growth in export of services moderated in H1 FY 12 to 17.1%

• Software exports may show some sluggishness

• Trade challenges include global situation, systemic problems

• Further diversification of India’s export basket needed

• Facilitate trade by removing procedural delays, red tape

• Infrastructural bottlenecks need to be removed

• Total investment in SEZs till 31 Dec 2011 at Rs. 2,49,630.80 crore

• Formal approvals granted for setting up of 583 SEZs of which 380 notified

• Forex Reserves at USD 293 bn

• External Debt Stock at USD 326 bn

• Oil, Gold and Silver prices contribute to modest rise in current account deficit

• Net capital flows at USD 41.1 billion (4.5% of GDP) in the H1 of FY 12

• External commercial borrowing at USD 10.6 billion in H1 of FY 12

• Portfolio investment shows large decrease in inflow to USD 1.3 bn in H1 of FY 12

• Trade deficit more than 8 % of GDP and current account deficit more than 3 % sign of growing imbalance in BOP

• High share of volatile FFI flows added external shock

Infrastructure

• Performance of broad sectors and sub sectors in key infrastructure areas presents mixed picture

• Achievements in certain infrastructure sector ‘remarkable’

• Need to attract large scale investment into infrastructure

• Public-Private Partnership successful model

• PPPs expected to augment resource availability, improve efficiency

• Investment requirement at USD 1 trillion during Twelfth Plan

• 50% investment to come from private sector as against the 36% anticipated

• Financing infrastructure a big challenge

• Improvement in growth in power, petroleum refinery, cement, railway freight traffic, passenger handled

• Coal, Natural Gas, Fertilizers, handling of Export Cargo at airports and number of cell phone connections show negative growth

• Steel sector witnesses moderation in growth

• Core and infrastructure sector still depends on public sector projects

• Delays increase project risk and cost, and need to be minimized

• Credit growth to infrastructure sector turned negative in FY 12

• Incremental credit flow to the infra sector in April-December 2011 nearly 61% in same period year before

• Reduction in credit flow in power and telecom sectors

• Total FDI inflows into majors infrastructure sectors during April-December 2011 registered growth of 23.6%

• Challenges on form plateauing of the domestic savings and macro availability of resources

• Need for innovative schemes to attract large-scale investment into infrastructure

• Strengthening domestic financial institutions and development of long-term bonds market critical

Rupee

• Rupee falls by 12.4 % against USD

• Rupee falls from 44.97 per USD in March 2011 to 51.34 per USD in January 2012

• Rupee’s high volatility impairs investor confidence

• Aggressive stand to check Rupee volatility recommended

Finance Markets

• Volatility in global financial markets likely to tighten availability and cost of foreign funding 

• Government measures mitigate liquidity stress

• Indian banks robust amidst Eurozone crisis

• Financial infrastructure continues to function without any major disruption

• Indian financial markets, especially currency and equity, performed under pressure in FY 12

• Global market turmoil caused risk aversion and moderation in capital inflows

• Countervailing steps helped mitigate strains

• Global situation, rising trade imbalance, pace of reform initiatives to boost capital flows

• Domestic growth concerns likely to influence financial markets movements

• Concerns over Greece’s sovereign debt problem spreading to India

• Banking business may become more complex and riskier in future with greater global integration

• Risk and liquidity management, skill enhancement necessary

• Need to maintain sustainable levels of external debt

• Need innovative steps to bring corporate bond market at the centrestage

• Infrastructure financing and financing of unorganized micro/small business sector needed

Banking and Micro Finance

• Public sector banks show 19 % growth in priority sector lending 

• Credit Disbursement to agri sector exceeded target by 19 %

• Credit Disbursement helped over 12.7 mn new farmers

• 98 % public sector bank branches fully computerised

• Self Help Group- bank linkage programme major success

• Capital in banks essential for balance sheet expansion

• Rs 12,000 provided in FY 12 for capital infusion in public sector banks

• Growth in bank credit extended by Scheduled Commercial Banks grew at 17.1%

• Flow of agricultural credit impressive

• Infrastructure Debt Funds to facilitate flow of funds into infrastructure projects

• Resource mobilization through primary market shows sharp decline in FY 11

Environment and Climate Change

• Lower carbon sustainable growth to be central element of 12th plan 

• India’s per capita CO2 emissions much lower than those of developed countries even if historical emissions are excluded

• Need for more sensitivity from developed countries to carbon emissions

• Economic pricing of energy, new technologies to be the key

• India has taken voluntary actions to pursue sustainable development strategy

• Warming planet may cause adverse effects, extreme weather events

• India has stepped up protection of its natural environment, forests

• Five main challenges include climate change, food security, water security, energy security and managing urbanization

• Broad-based economic and social development answer for greater sustainability

Education and Employment

• Reform process in education continued IN FY 12 

• Aakash, low cost computing device launched

• Sarva Shiksha Abhiyan norms revised to correspond with the provisions of the RTE Act

• National Council for Teacher Education notified as the academic authority for teacher qualifications

• Number of out-of-school children down from 134.6 lakh in 2005 to 81.5 lakh in 2009

• Need to scale up the successful centres of innovations, create higher technical institutions

• Labour Bureau Survey indicates upward trend in employment since July 2009 maintained

• Employment in organized sector increased by 1.9 % in 2010

• Share of women in organized-sector employment at 20.4% in 2010 March end

• MGNREGA: Coverage increases to 5.49 crore households in 2010-11

• Government sets up committee for developing index for fixing MGNREGA wage rates